Introduction.

The inter-governmental conference convened to revise the Treaty of Rome, initiated at the end of 1990 and concluded at the Maastricht summit one year later, signalled the formal beginning of the process towards economic and monetary union (EMU). The Maastricht approach favoured gradualism over a rapid transition towards the adoption of a single currency. Gradualism was justified on the grounds that convergence of macroeconomic variables is a pre-condition of EMU and that time would be needed to set up new European monetary institutions. The events that occurred during the summer of 1992 have cast a shadow over the Maastricht approach. The Treaty was first rejected by the Danish voters, and later won a wafer-thin majority in France. Meanwhile, the uncertainty about the outcome of these votes, and the lack of progress of some countries in implementing their convergence programmes, combined with the uncompromising attitude of the German monetary authorities, put pressure on the European monetary system. After 13 years of steady progress during which the system had expanded from eight to eleven members, and almost six years since the last realignment, the exchange rate mechanism eventually broke up. In September 1992, the United Kingdom and Italy withdrew from the exchange rate mechanism and Spain and Ireland resorted, albeit temporarily, to exchange controls. [ABSTRACT FROM AUTHOR]